Private Equity is Fallible, Cypress Group Shows

Private equity may look like the holy grail to many investment professionals, but the unraveling of New York-based Cypress Group demonstrates that even the sainted are mortal.

After a series of high-level departures a year ago, Cypress lost another partner this week. And the 13-year old private equity firm now says it dropped previous plans to raise its first new fund since 1999, according to The Wall Street Journal's DealJournal blog.

On Monday, the giant hedge fund D.E. Shaw announced it had hired away David Lyon, a Cypress managing director and alumnus of Goldman Sachs and Och-Ziff Capital Management. Lyon joined D.E. Shaw's seven-month-old private equity team, which focuses on financially distressed companies.

Cypress endured a string of defections in the first half of 2006, capped by the departure of president and co-founder William Spiegel. Spiegel left in May 2006 to join Pine Brook Road Partners LLC, a new private equity firm. Pine Brook Road, launched by former Warburg Pincus Vice Chairman Howard Newman, concentrates its investments in the energy and financial services sectors.

Cypress had a number of failed investments including insurer Scottish Re, water-storage products company Amtrol, and grocery delivery business HomeRuns.com.

For now, the firm has abandoned efforts to raise any more funds, says DealJournal. Its remaining partners remain committed to eventually selling Cypress' investments at a profit, possibly in a package sale to another private equity firm, an unnamed person familiar with the firm told DealJournal.